ENERGY MIX DIVERSIFICATION STRATEGY FOR THE UGANDA ELECTRICITY GENERATION COMPANY LTD (“UEGCL”) March 3, 2021 Submission Date: March 3, 2021 Contract Number: USEA/LEI-2020-765-75-01 Activity Start Date and End Date: May 15, 2020 – March 3, 2021 Activity Location: Kampala, Uganda [Remote Consultation] Submitted by: London Economics International 717 Atlantic Avenue, Suite 1A Boston, MA 02111 Prepared for: United States Energy Association 1300 Pennsylvania Avenue NW Suite 550, Mailbox 142 Washington, DC 20004 July 2008 1 ENERGY MIX DIVERSIFICATION STRATEGY FOR THE UGANDA ELECTRICITY GENERATION COMPANY LTD (“UEGCL”) DISCLAIMER This publication was made possible by the support of the American people through the United States Agency for International Development (“USAID”). The contents are the responsibility of the Consultants and the United States Energy Association, and do not necessarily reflect the views of USAID or the United States Government. 2 TABLE OF CONTENTS TABLE OF CONTENTS....................................................................................................................................3 TABLE OF FIGURES...........................................................................................................................................5 ACRONYMS AND ABBREVIATIONS ..........................................................................................................7 EXECUTIVE SUMMARY ..........................................................................................................................9 1.1 UEGCL Strategy highlights ...................................................................................................... 12 1.2 Recommendations for the sector ......................................................................................... 14 PLANNING FOR AN ENERGY MIX DIVERSIFICATION ........................................................... 15 2.1 Diversification for a more resilient utility ........................................................................... 15 2.2 Institutional structure to support efficient planning strategy ......................................... 17 2.3 Review of best practices planning in international jurisdictions ..................................... 17 2.4 Key takeaways from case studies and recommendations for the UEGCL and Uganda 25 ASSESSING PROSPECTIVE TECHNOLOGIES FOR THE ENERGY MIX DIVERSIFICATION ......................................................................................................................................... 27 3.1 Technical and operational considerations for prospective technologies ..................... 27 3.2 The case for solar development in Uganda ......................................................................... 27 3.3 The case for wind development in Uganda ......................................................................... 30 3.4 The case for geothermal development in Uganda ............................................................. 32 3.5 Key takeaways for UEGCL ..................................................................................................... 36 ANALYZING AND QUANTIFYING THE NEEDS TO BE ADDRESSED BY THE ENERGY MIX DIVERSIFICATION ................................................................................................................................ 38 4.1 Developing a load forecast (demand) ................................................................................... 40 4.2 Developing an energy production forecast (supply) ......................................................... 44 4.3 Summary of results from supply-demand balance analysis .............................................. 53 4.4 Opportunities for the incorporation of new renewable generation ............................ 54 4.5 Hedging against uncertainties ................................................................................................. 55 4.6 Known restrictions imposed by the transmission system ............................................... 57 4.7 Potential feasible locations to connect generation resources to the Ugandan transmission system .................................................................................................................................... 59 4.8 System Connection Costs ....................................................................................................... 61 PROPOSED STRATEGY (IN THE SHORT TO LONG TERM) TO ACHIEVE ENERGY MIX DIVERSIFICATION ......................................................................................................................................... 63 5.1 Action items for the Short-term (2020-2024) ................................................................... 63 5.2 Action items for the Mid-term (2025-2030) ....................................................................... 64 5.3 Action items for the Long-term (2031-2040) .................................................................... 64 3 FINANCING THE ENERGY MIX DIVERSIFICATION STRATEGY .......................................... 66 6.1 Financing activities in the short term: capacity building and planning ........................... 66 6.2 Financing activities in the mid-term: renewables development ...................................... 66 6.3 Financing activities in the long-term ..................................................................................... 74 ADDITIONAL THOUGHTS AND INDUSTRY WIDE RECOMMENDATTIONS ............... 75 7.1 Recommendations for the sector ......................................................................................... 75 7.2 Recommendations relative to project development ........................................................ 76 APPENDIX A – DETAILED SUPPLY-DEMAND BALANCE ANALYSIS .................................. 78 8.1 Illustration of Supply-demand balance (capacity) over the 2020-2040 horizon ......... 79 8.2 Illustration of supply-demand balance (energy) over the 2020-2040 horizon ............ 80 APPENDIX B – FRAMEWORK FOR DEVELOPING A POWER SYSTEM EXPANSION PLAN ................................................................................................................................................................... 84 APPENDIX C – ATTACHMENT - LCOE MODEL DEVELOPED FOR UEGCL ...... 89 APPENDIX D– SUMMARY OF COST ANALYSIS: IMPACT OF VARIOUS FINANCING STRUCTURES ON PROJECT ($/KW-YEAR) AND ENERGY COST ($/MWH) .. 90 11.1 Impact of the choice of financing structure on development ($/kW) and energy costs ($/MWh) ............................................................................................................................................. 90 11.2 Sensitivity analysis ...................................................................................................................... 93 APPENDIX E – WORKS CITED ........................................................................................... 96 4 TABLE OF FIGURES Figure 1. Key lessons for Uganda from case studies ................................................................................ 10 Figure 2. Illustration of the 5-step methodology ...................................................................................... 11 Figure 3. UEGCL strategy highlights and key recommendations for Uganda .................................... 12 Figure 4. Uganda installed capacity and generation .................................................................................. 15 Figure 5. Case studies key characteristics .................................................................................................. 18 Figure 6. Kenya economy and electricity sector snapshot ..................................................................... 19 Figure 7. Kenya institutional framework ..................................................................................................... 20 Figure 8. Panama economy and electricity sector snapshot .................................................................. 21 Figure 9. Panama institutional framework .................................................................................................. 22 Figure 10. Ghana economy and electricity sector snapshot .................................................................. 23 Figure 11. Ghana institutional framework .................................................................................................. 24 Figure 12. Solar irradiation in Uganda ......................................................................................................... 28 Figure 13. Wind resource maps of Uganda ............................................................................................... 31 Figure 14. Risk profile of geothermal development ................................................................................. 34 Figure 15. Illustration of the 5-step methodology .................................................................................... 39 Figure 16. 2020-2029 Base and high load forecasts adopted in this study ......................................... 41 Figure 17. Base and High Load Demand Forecasts, 2020-2040 ............................................................ 42 Figure 18. Energy Demand Forecasts (GWh) (Base and High), 2020-2040 ....................................... 43 Figure 19. Capacity (MW) Forecasts (Base and High), 2020-2040 ...................................................... 43 Figure 20. Power Plants in Uganda (Q2 2020) .........................................................................................